Build Arks in the Sunshine

He was six hundred years old when the he and his family boarded the vessel which would save their lives and protect their precious cargo from the ravaging floods. You and I might not have Noah’s longevity. Hopefully, we each command commitment, competence and courage, and build our arks while the sun’s shining.

Protect your wealth and liquidity – Investors tend to be more complacent and less risk adverse when their monthly account statements continue to post gains – largely from US stock market advances. It’s not a question of if the stock market will correct, it’s when. Stay alert, maintain disciplined diversification strategies, and don’t put short-term need money at risk (e.g. your tax bill in April, daughter’s wedding in June, or planned expenses 1-3 years out).

Here’s an example. Some employees in the Nevada PERS retirement system are eligible to increase their pension benefit by purchasing up to five years of service credit. The cost is based on your age and current average compensation – if the cost to buy one year is $30,000, then the cost for five years is $150,000. Sources to fund the purchase can be tax-deferred accounts – 401k, IRA, 457 plan, etc. (Consult with your tax advisor and benefits manager). Say you’re considering using your 457 plan, it’s diversified with equity mutual funds, and you’re going to make the purchase soon to avoid higher future costs. Consider selling plan assets now and park the $150,000 in the money market to reduce market risk. Until you actually transfer the 457 funds to PERS, you’re forgoing the opportunity for market gains for the benefit of not losing money. Most investors hate to lose.

Revisit your savings and spending plans – Tax deferred limits to retirement plans (IRAs, 401k’s, etc.) generally remain unchanged for 2014. That may encourage investors to save more (and balance their nest eggs) into after-tax vehicles (e.g. individual, joint or trust accounts). On the other side, expenses tend to rise – e.g. inflation and rising interest rates. There may be other areas. My medical insurance costs are increasing under Obamacare. I’m grateful I didn’t receive an immediate cancellation notice. Instead, I was informed my coverage would be cancelled in 12 months, I’d pay a 16% premium increase for the interim, and per the State’s exchange site, the cheapest replacement coverage costs 59% more. No, I’m not happy. I’ll grouse. And while I’ll “hope” for changes with ACA, I’ll search alternatives and make adjustments to stay on track with my savings plan, and spend less to balance my budget.

Stay vigilant for more regulation and reform – Retirement planning is but one area. The three main issues being discussed in Washington are fiduciary rules, tax reform and IRAs. Fiduciary issues – the focus on putting clients’ interests first (fiduciary) vs. “suitability” standards (brokers) – are debated at the DOL and SEC. The debt ceiling and budget crises haven’t gone away. Government is hunting for more revenue. And tax incentives for retirement saving are under scrutiny. The President has proposed limiting how much Americans can sock away for retirement, and Representative Camp and Senator Baucus – two leading tax law writers – have stated their intentions for a broad “blank slate” approach to tax reform. And IRAs – representing about $5.1 trillion in retirement assets – are coming under increased pressure for uniform disclosure notices (think about the additional information you receive on self-directed 401k’s).